Stanchart Platinum Access Card

Be careful and read the fine print when using financial tools such as credit cards. Below is a warning about the new product that Standard Chartered has pushed out lately, Platinum Access card.

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Beware of the high interest rates and extra costs when you live on credit

Recently, Stanchart launched its new Platinum Access card aimed at young working professionals in Singapore.

This allows the cardholders to spread the cost of their purchases above $100 over two years or more.

This is worrisome from two perspectives. Firstly, it is clearly encouraging the young professionals to live beyond their means. This is contrary to sound financial planning that the government advocates for all Singaporeans.

Secondly, the true cost of using the service is not fully revealed.

This will mislead many who will end up with heavy debts.

Firstly, the 5% per annum rate that is charged on the amount of purchases is not clearly highlighted as a flat rate basis.

The bank, however, did mention that the effective rate would work out to be 9.32% p.a.

Credit cardholders must also realise that there is a 6% administrative fee chargeable immediately. This will raise the effective rate to close to 16% p.a.

Under the present system, cardholders can decide not to roll over the balance if their cash flow allows them to do so. The 24% p.a. interest will then cease to be chargeable.

As for the Stanchart's new Platinum Access card, the 16% p.a. effective interest rate is already charged for 24 months.

An administrative charge of $50 will also be levied if the cardholders cancel the payment of instalments when they repay the full amount owed for a purchase.

This will rocket the effective interest rate way beyond 24% especially for purchases of relatively small amount. This means that you are effectively locked in for the full period and remain indebted to the bank even when you have the liquidity to free yourself from the debt.

Cardholders must also realise that if the repayment period is shortened, the administrative fee of 6% and the 5% p.a. flat interest charged for the entire 24 months will cause the effective rate to increase even further.

For example, let's assume the purchase is for $1,000. The administrative fee payable is $60 and the interest chargeable for the two years will be $100 (ie. 5% p.a. for two years on $1,000).

The monthly instalment is calculated at $1,100/24 = $45.83. If you decide to repay fully after one year, the remaining aggregate instalment to repay will be $550 plus the administrative fee of $50.

To calculate the effective interest for the financing of the purchase, the following are the critical numbers:

Present value = $940 (This represents the net amount that the bank actually finances after netting off the administrative fee of $60).

Payment per month = $45.83 (monthly instalment)

Number of instalment paid : 12

Amount to pay at the end of 12 months to repay fully: $600

The effective interest rate works out to be 26.5% p.a.

If the amount of purchase is $500, the effective interest rate will work out to be 31.9% p.a.

This is certainly not an attractive product for our young professionals.

Dr Johnny Tan Hung Ming
Source: ST Forum